Power supply mismatch and reluctance on part of state discoms to enter into long-term PPAs is providing immense opportunities to merchant market, says India Ratings (Ind-Ra).

Developers with power purchase agreements (PPAs) that find spot market prices lucrative to enhance their returns could fiercely compete with other marginal players, if power is not scheduled by counter-parties, it said.(Representative image Reuters)

Power supply mismatch and reluctance on part of state discoms to enter into long-term PPAs is providing immense opportunities to merchant market, says India Ratings (Ind-Ra). “The short-term power market is up for an eventful journey in FY18-FY20, as a mismatch in supply-demand and a hiatus in long-term power purchase by states provide immense opportunities to the merchant market,” the agency said in a statement today. Ind-Ra expects utilities to increase the share of short-term purchases in the next three years gradually.

“Against a backdrop of diminishing power rates, discoms have unfettered access to the economical merchant market, apart from existing power purchase contracts. With spot prices hitting rock-bottom levels, discoms can reap benefits in the form of cost savings,” it said. Developers with power purchase agreements (PPAs) that find spot market prices lucrative to enhance their returns could fiercely compete with other marginal players, if power is not scheduled by counter-parties, it said.

“Meanwhile, power producers that have not entered into PPAs will tap the merchant market, only when cost of generation (including fixed and variable cost) is lower than merchant rates,” the agency opined. Ind-Ra also said though the power market is still inhibited by impediments such as transmission constraints, opaque processes on open access within most states and steep cross-subsidy charges, it will benefit from the recent regulations focused on improvements in grid code and grid operations, as well as from the introduction of forecasting and scheduling for renewable power.